This article is for general educational purposes and is not tax, legal, or financial advice; consult a licensed CPA or M&A attorney before signing any deal. All tax figures reflect tax year 2026 (IRS Revenue Procedure 2025-32) unless a different year is noted inline.
TL;DR — Quick Verdict
- On a $2,000,000 sale price, a standard broker commission under the Double Lehman formula runs $180,000 — 9% of the headline number, paid at closing.
- Federal long-term capital gains top out at 20% in 2026 (plus a 3.8% Net Investment Income Tax), but depreciation recapture and inventory get taxed as ordinary income at rates up to 37%.
- Asset sale vs. stock sale: the same $2,000,000 price can leave a seller with roughly $60,000–$120,000 less after tax in an asset sale, because more of the gain converts to ordinary income.
- Firms like Sunbelt Business Brokers, Transworld Business Advisors, and VR Business Brokers typically charge 8%–12% on Main Street deals under $1,000,000; the minimum fee floor often pushes the effective rate above 15% on small transactions.
- Qualified Small Business Stock (Section 1202) can exclude up to $15,000,000 of gain after the 2025 One Big Beautiful Bill Act — but only C-corporation stock qualifies.
- Model your net proceeds before you list. The gap between headline price and take-home check is routinely 30%–45%.
A seller who signs a letter of intent at $2,000,000 rarely walks away with $2,000,000. Between broker commission, federal and state tax, and the way the IRS carves your gain into buckets taxed at wildly different rates, the check that lands in your account is a different — and smaller — number than the one on the term sheet. Industry survey data compiled by the International Business Brokers Association (IBBA) puts typical Main Street commissions at 8% to 12% of sale price, and that is only the first deduction. The second, capital gains tax, is governed for 2026 by IRS Revenue Procedure 2025-32, which sets the 20% top long-term rate and the income thresholds where it kicks in.
This report shows the full stack of deductions between headline price and net proceeds. You will get the 2026 Lehman commission schedule with worked dollar figures, the difference between an asset sale and a stock sale in after-tax terms, a breakdown of which parts of your sale price get taxed as ordinary income, and the conditions under which Section 1202 wipes out a chunk of your tax bill entirely.
The 2026 Broker Commission Schedule, With Real Dollar Figures
Business brokers work on success fees. No sale, no commission — but at closing, the seller pays the entire fee. The dominant structure is the Lehman formula and its variants, a tiered scale where the percentage drops as the deal grows. The version most brokers now quote is the Double Lehman: 10% on the first $1,000,000 of transaction value, 8% on the second, 6% on the third, 4% on the fourth, and 2% on everything above $4,000,000.
Run the math on a $2,000,000 sale. You pay 10% on the first million ($100,000) and 8% on the second ($80,000), for a total commission of $180,000 — a blended 9% effective rate. On a $5,000,000 deal, the tiers stack to $300,000, a 6% blended rate. The scale rewards size.
Source: Double Lehman formula as applied by Morgan & Westfield and IBBA/M&A Source Market Pulse survey data (verify at morganandwestfield.com). Figures modeled by the author using the standard 10-8-6-4-2 tier structure.
Two clauses quietly raise the real cost. The first is the minimum fee floor — commonly $15,000 to $50,000 — that the broker collects regardless of what the percentage produces. On a $150,000 sale, a $25,000 minimum is a 16.7% effective rate. The second is the tail provision, which keeps the broker owed a fee for 12 to 24 months after the engagement ends if you close with a buyer they introduced. Owners weighing whether the fee is worth it should compare it against the cost structures in a small business valuation and appraisal, since a defensible valuation often justifies a higher asking price than a solo sale would fetch.
How the IRS Splits Your Sale Price Into Taxable Buckets
Most sellers assume the whole gain gets the friendly long-term capital gains rate. It does not. In an asset sale — the structure used for most sole proprietorships, LLCs, and S-corporations — the purchase price is allocated across seven asset classes under IRC Section 1060, and both buyer and seller report the allocation on IRS Form 8594. Each class carries its own tax character.
Consider a $2,000,000 asset sale of a service business. Say the parties allocate $1,400,000 to goodwill, $400,000 to equipment, and $200,000 to a covenant not to compete. Goodwill (Class VII) is a capital asset — taxed at long-term capital gains rates if held over a year. The covenant not to compete (Class VI) is ordinary income, taxed up to 37%. The equipment triggers depreciation recapture: any previously deducted depreciation is clawed back as ordinary income under Section 1245, and only appreciation above original cost gets capital gains treatment.
That split matters enormously. Buyers push for allocation toward equipment (they get faster future depreciation); sellers push toward goodwill (they get the lower capital gains rate). The allocation is one of the most consequential negotiations in the deal, and mismatched Forms 8594 are an audit flag. If your business carries significant financed equipment, the recapture math interacts directly with how you originally structured the purchase — the difference between equipment financing versus leasing total cost shows up again at sale time through the depreciation schedule.
Asset Sale vs. Stock Sale: Which Is Better for the Seller?
The single biggest lever on your after-tax proceeds is deal structure. In a stock sale, the buyer purchases your entity itself. Your entire gain is generally long-term capital gain, capped at the 20% federal rate plus the 3.8% NIIT — no recapture, no ordinary-income allocation. In an asset sale, the buyer purchases specific assets, the Section 1060 allocation kicks in, and a portion of your proceeds converts to ordinary income at rates up to 37%.
Take the $2,000,000 example. In a clean stock sale, roughly the entire gain rides the capital gains rate. In an asset sale with $400,000 of equipment carrying $200,000 of prior depreciation plus a $200,000 covenant, that $400,000 of ordinary-income treatment can cost an extra $60,000 to $120,000 depending on your bracket and state. Buyers, however, strongly prefer asset sales for the basis step-up and liability protection — so sellers who insist on a stock sale often accept a lower headline price to compensate.
Source: IRC Section 1060 and Section 1245 recapture rules, per NATP and IRS Form 8594 guidance (verify at irs.gov). Dollar impacts modeled by the author.
Verdict
For the seller, a stock sale almost always produces higher after-tax proceeds because the entire gain gets capital gains treatment and recapture disappears. But buyers resist it, so the practical outcome is usually an asset sale with the allocation negotiated aggressively toward goodwill. If you hold qualifying C-corporation stock, the stock sale advantage becomes overwhelming — see the Section 1202 section below. Model both structures with a CPA before you list, not after you receive an offer.
The 2026 Capital Gains Brackets That Set Your Rate
Your long-term capital gains rate is not a flat number — it depends on your total taxable income for the year, including the gain itself. For 2026, IRS Revenue Procedure 2025-32 sets three rates: 0%, 15%, and 20%. A single filer pays 0% on long-term gains up to $48,350 of taxable income, 15% up to $533,400, and 20% above that. Married couples filing jointly get the 0% rate up to $96,700, 15% up to $600,050, and 20% beyond.
A business sale gain is large enough to push most sellers straight into the 20% bracket for the bulk of the proceeds. On top of that sits the 3.8% Net Investment Income Tax for high earners, making the true federal ceiling on long-term gains 23.8%. State tax stacks on separately and varies widely — some states have no capital gains tax, others add double digits.
Source: IRS Revenue Procedure 2025-32, tax year 2026 long-term capital gains thresholds (verify at irs.gov). A 3.8% Net Investment Income Tax may apply above $200,000 single / $250,000 MFJ modified AGI.
Because the gain itself counts toward the threshold, a large sale in a single year can vault otherwise moderate-income sellers into the 20% band. That timing problem is exactly why installment sales — spreading proceeds over multiple tax years — remain a common planning tool, though depreciation recapture must be recognized in the year of sale regardless.
What Most Sellers Get Wrong About Net Proceeds
Three mistakes recur across owner-led sales, and each one costs real money.
Mistake one: budgeting off the headline price. A seller who mentally spends $2,000,000 is off by hundreds of thousands. Between a $180,000 commission and a 20%-plus tax bill on the gain, net proceeds routinely land 30% to 45% below the sticker. The correct action is to build a net-proceeds waterfall — price minus commission minus tax minus deal costs minus debt payoff — before listing.
Mistake two: ignoring the allocation until closing. Owners who let the buyer draft Form 8594 unopposed often accept an allocation loaded toward equipment and covenants, maximizing their own ordinary income. The correct action is to negotiate the Section 1060 allocation toward goodwill and back it with an independent appraisal.
Mistake three: assuming any small business qualifies for Section 1202. The QSBS exclusion only applies to C-corporation stock — not LLCs, not S-corporations, not sole proprietorships as they stand. The correct action is to check entity type years before a sale, because the holding-period clock and C-corp status must both be in place. Sellers carrying a personal guarantee on outstanding business debt should also confirm how that debt gets paid off at closing, since guaranteed loans come off the top of proceeds before any tax calculation.
Section 1202: The 2025 Rule Change That Can Erase Your Tax Bill
The most powerful — and most misunderstood — tool for sellers of C-corporation stock is the Qualified Small Business Stock exclusion under IRC Section 1202. The One Big Beautiful Bill Act, signed July 4, 2025, expanded it substantially. For stock acquired after that date, the per-issuer exclusion cap rose from $10,000,000 to $15,000,000 (indexed for inflation starting in tax years after 2026), and the company’s aggregate gross-assets ceiling rose from $50,000,000 to $75,000,000.
The bigger structural change is the new tiered holding period. Under the old rules, you got nothing unless you held for five full years. Now, for post-July 4, 2025 stock, holding at least three years exempts 50% of the gain, four years exempts 75%, and five years exempts the full 100%. Any non-excluded Section 1202 gain is taxed at a maximum 28% rate rather than 20%.
The catch is entity type. Only domestic C-corporation stock qualifies — and several states, including California, New Jersey, and Pennsylvania, do not recognize the exclusion at all, so a seller in those states still owes state tax on the “excluded” federal gain. For owners who converted from an S-corporation or LLC, only stock issued after the C-corp conversion date starts the clock. A seller weighing a conversion should also review how it interacts with existing financing — the liability differences between business and personal cards and any entity-level guarantees can complicate a clean conversion. Owners still in the growth phase who are choosing between funding routes may want to compare the long-run exit implications alongside the day-one cost of an SBA 7(a) loan’s rates and fees, a line of credit versus a term loan, or newer structures like revenue-based financing cost structures, since the entity choice that supports each also determines Section 1202 eligibility years later.
Is Hiring a Broker Worth It? The Conditional Math
A 9% commission on a $2,000,000 sale is $180,000 — a large number that makes many owners consider selling solo. Whether the fee is worth it comes down to one question: does the broker raise your net sale price by more than their fee, net of the extra tax on the higher price?
Hire a broker if your business is above roughly $500,000 in value, you lack a ready buyer, and confidentiality matters — brokers run competitive processes that frequently lift the final price by more than their commission. Skip or negotiate hard if you already have a motivated buyer (a competitor, a key employee, a family member), because then you are paying a success fee for a deal you sourced yourself. In that case, an M&A attorney charging hourly for document work often costs a fraction of a percentage-based commission.
The break-even is straightforward: if a broker can push a $1,800,000 self-sale to $2,050,000, the $180,000 fee nets you positive even after the added tax on the higher gain. Owners exploring financing to bridge to a sale — or buyers structuring an acquisition — should separately weigh the cost of an SBA microloan versus a community bank loan against faster but pricier options like a merchant cash advance’s real APR, since the financing on the buy side shapes what a buyer can pay on the sell side.
Frequently Asked Questions
Who pays the business broker commission, buyer or seller?
In nearly every transaction, the seller pays the entire commission at closing, deducted from the sale proceeds. Under the Double Lehman formula, that is 10% on the first $1,000,000 of transaction value and 8% on the second — $180,000 on a $2,000,000 deal. The fee is a success fee: if the sale does not close, no commission is owed, though upfront retainers of $2,500 to $10,000 are typically non-refundable.
What is the difference between depreciation recapture and capital gains?
Capital gains apply to appreciation on capital assets like goodwill, taxed at 0%, 15%, or 20% for 2026 under IRS Revenue Procedure 2025-32. Depreciation recapture claws back the depreciation you previously deducted on equipment or real property and taxes it as ordinary income — up to 37% on equipment under Section 1245, or a maximum of 25% on real property under Section 1250. Recapture routinely surprises sellers who forgot how much depreciation they wrote off.
Does my LLC qualify for the Section 1202 QSBS exclusion?
Not as a standard LLC. Section 1202 requires domestic C-corporation stock. An LLC or S-corporation would need to convert to a C-corp, and only stock issued after conversion starts the holding-period clock. Post-July 4, 2025 stock can exclude up to $15,000,000 of gain, with tiered exclusions of 50%, 75%, and 100% at three, four, and five years of holding under the 2025 One Big Beautiful Bill Act.
Can I reduce the tax hit by spreading payments over years?
An installment sale under Form 6252 lets you report capital gain as you receive payments, which can keep you below the $533,400 single / $600,050 married 20% capital gains threshold in any single year. One major exception: depreciation recapture must be recognized in full in the year of sale, even if you receive the cash later. Model the timing with a CPA before agreeing to installment terms.
How We Researched This Article
This report combines primary tax authority with current M&A market data to model the gap between a business’s headline sale price and the seller’s net proceeds. The 2026 long-term capital gains rates and income thresholds were taken directly from IRS Revenue Procedure 2025-32 as summarized by Kiplinger’s coverage of the 2026 thresholds. The seven-class purchase-price allocation, Form 8594 filing requirement, and depreciation recapture treatment under Sections 1245 and 1250 were verified against practitioner guidance from the National Association of Tax Professionals.
Broker commission figures reflect the Double Lehman formula (10-8-6-4-2 per million-dollar tier) as documented by Morgan & Westfield’s fee guide, cross-referenced against IBBA and M&A Source Market Pulse survey ranges of 8% to 12% on Main Street deals under $1,000,000. The 2025 Section 1202 changes — the $15,000,000 cap, $75,000,000 gross-assets test, and tiered holding-period exclusions — were confirmed against Grant Thornton’s OBBBA analysis and The Tax Adviser.
All dollar figures in the worked examples are modeled by the author using the verified formulas and rates, not measured from a single transaction; actual outcomes vary by state tax, entity type, allocation negotiation, and individual taxable income. State-level capital gains treatment and QSBS conformity were not modeled for every jurisdiction and should be confirmed locally. This research was last conducted July 2026. All figures were verified against named primary sources before publication.